The additional Fed rate increases expected this year hearkens a CEO back to December 1996. Then former Federal Reserve Chair Alan Greenspan uttered the unforgettable words, “irrational exuberance,” over the dot.com expanding bubble. In 2000, he raised interest rates several times and many believe it led to the dot.com bubble to burst over a two-year $5 trillion stock market crash.

Todd Harris, president/CEO of the $2.1 billion Tech Credit Union in San Jose, Calif., worries that history is repeating itself with irrational exuberance part 2 over Trump's promises of expansive economic growth coupled with more Fed rate hikes that could lower loan demand over the long run and stall the industry's growth.

But other credit union executives argue the rate hikes in December and March, and the ones expected to follow, signal the Fed's confidence of self-sustaining economic expansion, which will boost consumer confidence and more people will take out loans, at least through 2017.

Nonetheless, both sides agree that if the economy continues to grow and higher interest rates come with it, loan demand will eventually slow down and credit unions may want to consider strategies to counter that looming trend. Tech CU, for example, is looking to establish more indirect lending channels and exploring partnerships with fintechs.

“The Yellen Fed is on the precipice of making the same mistake the Greenspan Fed did when it tried to control capital market prices by increasing rates,” Harris said. “Greenspan had the dot-com bubble of the 90s that he wanted to address. Remember when eyeballs on websites were more important than corporate earnings and companies changed their name to whatever.com just so they could raise capital? Today, we have the Trump rally.”

Harris was hoping the Fed would not raise the rate in March because there is so much unknown in terms of the economic policies of the Trump administration.

“We hear things like, 'it'll be great,' 'people will love it,'” Harris said. “But I think we need a little bit more specificity than that before we actually start celebrating.”

He pointed out that the Trump rally assumes reduced regulations, lower taxes and less red tape will mean accelerated economic growth. It could, Harris said, but then again it might not. Additionally, the president's failure to pass Trumpcare and other controversies surrounding the White House are likely to weaken Trump's plans on tax reform and perhaps other economic initiatives that require approvals from a deeply divided and uncompromising Congress.

Despite all of these uncertainties, Steve Rick, chief economist for CUNA Mutual Group in Madison, Wis., projects loan growth of more than 10% this year.

“Actually right now, year over year, we're running at over 11%,” Rick said. “This will be the fourth year of double digit loan growth.”

And that has not happened in the credit union industry in 30 years.

Though Rick acknowledged the only certainty is uncertainty with Trump, what is certain nevertheless is his expansionary fiscal policy.

The only uncertainty, he noted, is in respect to the timing and the amount of infrastructure spending, tax reform and regulatory relief.

While regulatory relief is likely to lower costs and open more opportunities for credit unions to better serve their members, Rick said the four most dangerous words an economist can utter is, “this time is different.”

Rick believes that the expected higher interest rate environment of 2017 is different this time for credit unions because they are in a tighter liquidity position than they were during the higher rate environment of 2004 to 2006.

In June 2006, the Fed raised its benchmark interest rate to 5.25% from 5%, which was the 17th consecutive quarter percentage point increase since June 2004.

“When they were starting to raise rates, credit unions at that time had a loan to asset ratio of about 62%, which was relatively low,” Rick said. “So they had a lot of liquidity back then. Today, the loan to asset ratio is 68%, so it's significantly higher. And if you look at big credit unions, it's even a lot higher than that.”

Because credit unions are in a tighter liquidity position, it means they are going to have to raise their deposit rates faster than they did in 2004 to 2006.

“For three years in a row now we've had double-digit loan growth, so a lot of credit unions are kind of lent up and they need those deposits to keep funding loans,” he explained. “So when the money market mutual fund starts raising rates as fast as the Fed does, which they do, credit unions are going to have to raise their rates faster than they did 12 years ago to keep their members from running off to the money market mutual fund.”

What may put more pressure on credit unions this year is the expected demand for loans that traditionally follow a fed rate hike. Research shows fence-sitters will typically start shopping for new loans after an initial interest rate increase because they know more rate hikes may follow.

However, in Harris' experience, the loan growth after a rate hike is only a bump and then it begins to slow down considerably within 30 to 60 days. Other credit union executives say they have not seen increases in loan demand.

Michael Poulous, president/CEO of the $785 million Michigan First Credit Union in Lathrup Village, said he has seen no bump in loans.

“I remember years ago when we used to have rates go up and down fairly frequently you would see those kinds of behavioral change,” he said. “I don't know why, but since we didn't have rate increases for years, until recently, perhaps people have become desensitized to it.”

Chuck Price, vice president of lending for the $2.5 billion NEFCU in Westbury, N.Y., said he hasn't seen any significant loan volume changes after the December rate increase and he doesn't know whether a bump in loans will come after the March rate increase.

While credit unions may not be feeling the impact now, they are expected to later this year or next year if the economy continues to expand and more interest rates hikes come with it.

“We're going into an environment now where our deposit costs are going to go up, our credit exposure will, in all likelihood with all things being equal, will go up a little bit because asset values, collateral values will go down and then loan demand will go down,” Harris explained. “So we'll take those higher cost deposits now and redeploy them into higher-earning [adjustable rate] loans, but that opportunity will gradually decrease also because you're going to have loan demand that's going to slow.”

Because the Fed's interest rate hike was anticipated for quite some time, Tech CU began five years ago to restructure its balance sheet. The credit union redeployed its $700 million investment portfolio into certain variable rate asset based investments and leveraged collateralized mortgage obligations with short-term maturities.

To make up for the anticipated lower loan demands, Tech CU is planning to expand its indirect lending channels and explore new partnerships with fintechs.

“We have a couple special relationships with local companies around here as well. One is Tesla, so we finance quite a few loans for Tesla automobiles given the market that we're in,” he said. “That kind of helps us diversify our origination channels. I think credit unions that can figure out ways in their local markets to form those relationships and expand those indirect lending channels have a much better chance of trying to meet their loan goals.”